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* LBMA settles on silver fix replacement after 2-month hunt
* New mechanism heralds change in precious metals benchmarks
By Clara Denina and Jan Harvey
LONDON, July 11 (Reuters) - CME Group and ThomsonReuters will operate an electronic silver benchmarkwhen the 117-year-old "fix" is disbanded in August, in a movewidely seen preceding sweeping reforms of precious metalsprice-setting.
The London Bullion Market Association (LBMA) said in astatement on Friday that CME Group will provide a price platformand methodology for the daily process, while Thomson Reuters isresponsible for administration and governance.
CME/Thomson Reuters will start testing the new process inearly August after the closely contested competition to produce a solution.
The silver fix - used by producers, consumers and investors- is set every day at noon by three banks via a conference call,working out a price at which their customers are willing to buyand sell the metal.
But with increased attention from regulators in the wake ofbenchmark manipulation in other markets, the current operator -London Silver Market Fixing Ltd - said in May it would stoprunning the daily call.
The LBMA consulted market participants with the aim ofproducing a transparent electronic alternative that complieswith toughened regulatory benchmarking standards.
The association received seven proposals. The maincontenders also included the London Metal Exchange (LME) andtechnology provider Autilla, which had this week joined forces;U.S. derivatives exchange Intercontinental Exchange, andU.S. news agency Bloomberg.
The new price mechanism is electronic, auction-based andauditable, the LBMA said. It is also tradeable with an increasednumber of direct participants.
"The winner of the silver fixings is of course the first whowould have his hat in the ring when it comes to conducting theother fixings," said one market participant who took part in theLBMA consultation.
BIG BANG
The overhaul of the silver fix is likely to mark thebeginning of a major revamp of precious metals benchmarks,including the century-old gold fix and the platinum andpalladium fixes.
Some of the companies that had proposed alternatives to thesilver fix said they would be ready to assist the gold market,should the current benchmarking process be reformed.
The LME said "we are ready to expand our range of productsto further service the industry".
A CME statement said: "We regularly review the marketlandscape and global dynamics of the gold market, and wecontinue to talk with customers and market participants aboutnew and innovative ways to help them manage their global pricerisk."
The World Gold Council held a discussion among buyers andsellers of gold last week on ways to reform the price benchmark.
Financial details of the service to be provided by CME Groupand Thomson Reuters were not disclosed.
IOSCO LOOMS
Although market participants view many aspects of theexisting gold process favourably, reforms still need to complywith the 19 principles on financial benchmarks outlined in July2013 by the International Organization of Securities Commissions(IOSCO), an umbrella body of market regulators.
"In the end, we had a workable structure, and two largeorganisations with plenty of experience behind them in terms ofsystems and compliance, and regulatory issues," said JonathanSpall of G Cubed Metals Ltd, which conducted an independentreview for the LBMA as part of the selection process.
Thomson Reuters already works with the LBMA to administerGold Forward Offered Rates, used in swap deals.
The banks involved in the current silver fixing are DeutscheBank, HSBC and Bank of NovaScotia-ScotiaMocatta.
Deutsche Bank's decision earlier this year to leave the goldand silver fix process raised questions about the future of theprecious metals benchmarking system.
Barclays Plc and Societe Generale operatethe gold fixing, along with Scotia and HSBC, while Deutsche Bankstopped in May after two decades.
A senior British regulator said last week when answeringlawmakers' questions on the trustworthiness of the gold marketthat collusion among banks in setting the gold benchmark waspossible, but there is no evidence of this. (Editing by Veronica Brown and Dale Hudson)
